8 - THE MIDDLE EAST AND INDIA, 1940–43

Summary

Keynes's interest in the wartime financial problems of Egypt and the Middle East would doubtless have been stimulated in any case as news of them reached the Treasury through normal channels. However, after October 1941, R. F. Kahn's position as Economic Adviser to Mr Oliver Lyttleton, Minister of State in the Middle East, meant that Keynes received an additional series of letters, memoranda and the like dealing with Middle Eastern questions and administrative problems.

Kahn's arrival in Egypt coincided with a period of considerable economic difficulties in the area. During 1939, 1940 and early 1941, the decline in demand for Middle Eastern exports resulting from wartime marketing disruptions and the slow build-up of British and Commonwealth forces in the area meant that inflationary pressures had proved relatively mild. However, from the spring of 1941 the economies of the area were affected by growing military operations, mounting local military expenditures and cuts in imports. Added to these forces was a disastrously short harvest in the summer of 1941. This led to food shortages in the towns, aggravated by producers' hoarding in the expectation of higher prices, and a shortage of goods and alternative stores of wealth. The inflation that resulted from these pressures led to discontent in the towns and British fears of possible political repercussions—repercussions that looked increasingly serious as the war moved closer to the area. At the same time, the governments of the area, with full treasuries and often little interest in the war, were deaf to Allied pleas to raise taxes and float local bond issues to mop up surplus purchasing power. […]